All posts tagged Mining

Rio Tinto has prided itself on the fact that more than 80% of its assets are in OECD countries. So its $3.9 billion deal last month to buy Australian-listed Riversdale Mining, whose principal assets are in Mozambique, represents a strategic shift for the global mining giant.

Riversdale will double Rio Tinto’s African gross assets, catapulting that continent past the U.S. in importance for Rio Tinto. Following on the heels of Rio Tinto’s multibillion-dollar investment in a metals project in Mongolia, the Riversdale acquisition signals the necessity for the global miner take on political risks it has heretofore shunned.

In this case, there are precious few Tier 1 hard coking (metallurgical) coal reserves in the world. Riversdale expects that by 2025 Mozambique will supplant the U.S. as the world’s second largest exporter of premium hard coking coal used for steelmaking (with a current global market share of 17%) after Australia (64%).

Riversdale didn’t have the financial wherewithal to bring the African reserves to production, however. As with the similarly sized Mongolian Oyu Tolgoi copper-gold mine (development cost in the neighborhood of $5 billion), where Rio Tinto stepped in to develop a site originally discovered by Canada’s Ivanhoe Mines, Rio Tinto brings operating credibility, depth of experience and marketing resources as well as financial backing.

South Africa’s mining ministry is showing the concerns miners have expressed over mineral rights have not fallen on deaf ears. Perhaps sensing that the confusion reigning among the country’s miners is counterproductive, the ministry this week said it is reviewing its mining legislation. This may go some way in calming worried miners and investors, or at the least, clarify the law that has been the source of so much confusion.

Mine concession right battles and nationalization talk this year have shaken the confidence of miners and raised questions about the future of the industry and how the Mineral and Petroleum Resources Development Act will be applied. Mineral Minister Susan Shabangu has tried to dispel fears that the government wants to nationalize the industry, but the popularity of the cause among some factions of the ruling African National Congress has undermined her efforts.

Given the long lead times to develop potash projects, greenfield investments will not capture the benefits of a projected near-term upswing in fertilizer demand. To buy into production, BHP will have to pay up, especially for the world’s largest potash. But with an enterprise value of $207 billion, BHP can afford to.

Vedanta Resources Wednesday faced mounting pressure about its human rights and environmental record in India as protesters, including celebrities such as Bianca Jagger, swamped its annual general meeting.

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Protesters at Vedanta’s annual general meeting today.

Some campaigners came dressed as characters from the film Avatar, as they liken Vedanta to the evil multinational in the movie.

Demonstrators are furious about a plan by the controversial miner to mine in the Orissa region of India. Vedanta is one of the largest mining companies operating in India and plans to create a large bauxite mine in the Niyamgiri Hills, home to the indigenous Dongria Kondh tribe.

Vedanta wants to build a bauxite mine on top of the Niyamgiri mountain, a sacred mountain for the Dongria Kondh who consider it to be the embodiment of their god Niyam Raja.

Jagger, a renowned activist and champion of tribal rights who has visited the site, said the Dongria Kondh are vehemently opposed to the project. She said “they say no amount of money would make them want to leave” the sacred area.

She handed the board of directors a box filled with petitions from more than 31,000 people keen to stop the project.

When national treasuries are hunting for ways to fill their coffers, the ‘extractive industries’ are often sitting ducks.

Mining, oil drilling, quarrying; you name it, they’ll tax it. It’s all so simple. Private enterprise finds the wells or deposits and puts in infrastructure so stuff can get out to market. Then the taxman comes along and, effectively, makes up a bill.

Profits can be truly massive, so you look like an evil capitalist if you moan. And you can hardly take your mine or well off to some more lenient tax regime. In any case, now you’ve told the people where it is and how to get it out, it’s the people’s oil, iron ore, coal, or whatever. We are the people’s representatives, says the treasury, so checkmate, cough up.

Look at the U.K.’s North Sea oil boom of the 1980s. The tax take from that wasn’t enough to ameliorate all the effects of heavy industry’s collapse, but it certainly helped. The U.K. looked a lot better than it would have without black gold.

EPA

A BHP Billiton reclaimer loading iron ore from a stockpile in Port Hedland in Western Australia.

And now the watering-down of proposals for a supertax on Australian mining profits will have implications well beyond that nation and that industry. [Read our latest coverage here.]

Ousted prime minister Kevin Rudd wanted a 40% levy, to the horror of miners and the political opposition. Under new PM Julia Gillard, the proposed headline rate falls to 30% and the scope of exemptions and get-outs is hugely increased.

This is probably good news for investors everywhere.

Ever since credit crunched, they’ve been wondering if the banking system’s manifest sins would embolden politicians to increase regulation and taxation of all major industries; surfing a wave of distrust against any enterprise that might be ‘too big to fail’.

Emergency workers remove debris at the site of an underground explosion, at the Raspadskaya mine in the city of Mezhdurechensk, in western Siberia, in early May.

Like most successful politicians, Vladimir Putin knows the quickest way to resolve a crisis — find someone to blame , and the Russian Prime Minister picked the obvious culprit for the Siberian mine explosions that killed more than sixty people.

In a televised conference on Monday, Putin asked why mine director Igor Volkov was still in his job. On Tuesday he was fired. On Wednesday he was under criminal investigation, and on Thursday he was charged.

For a long time, drivers took it as an insult if you tried to put on a seat belt. Then police started fining drivers, or more commonly making them pay bribes, if their passengers weren’t wearing a belt. After that, when you got into a car, the driver would ask to drape the belt around your shoulder so that passing police thought you were strapped in.

The mining equivalent of the seat belt is the methane detector, which automatically turns off the drills whenever the gas accumulates in dangerous quantities.

Russian officials believe that a high concentration of methane triggered the explosions on May 8, but the methane detectors hadn’t cut the power to the drills.

Workers at the Raspadkaya mine this week explained to reporters how this might have happened.

Western resource companies have spent nowhere near as much in Kyrgyzstan as they have in the giant copper deposits and oilfields of neighboring Kazakhstan, which boasts nine times the GDP per capita. But a few international banks and miners may still face problems from the renegotiation of contracts under a new administration in Bishkek, after President Kurmanbek Bakiyev fled the capital.

Eurasia Group analyst Ana Jelenkovic said:

The personal interest of Bakiyev-appointed elites underpinned the credibility of many foreign investment agreements. The upset of the Bakiyev regime now makes the political future of those elites, and the deals that they guaranteed, extremely uncertain.

Lithium’s best known for its use by those suffering bipolar disorder. Visions of an age of electric vehicles powered by lithium batteries would have this mood stabilizer become the new black gold. At present, only specialty car makers like Tesla Motors have cars on the road with lithium batteries.

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Austrian Environment Minister Nikolaus Berlakovich poses by a Tesla Roadster, an electric sports car on February 16, 2009 in Vienna.

But Nissan, GM, Toyota, Honda and Chinese automakers have models they plan to roll out in the next few years. Nissan has been the most ambitious, with plans to build capacity for over 500,000 electric vehicles, which use much more lithium than hybrids like Toyota’s Prius.

Not surprisingly, miners have been quick to seize on the story, playing up lithium’s green credentials. About 50 exploration companies have announced lithium developments over the past year, according to U.S. based industry analyst TRU.

Though small, the miners can deliver big gains for investors: shares of Orocobre, an Australian exploration company, nearly doubled after Toyota took a 25% stake in its Argentinean lithium deposit in January.

Sorting the wheat from the chaff among these small miners isn’t made easy by disagreements over just how much lithium is in the ground, or how quickly electric vehicles will catch on. A small community of geologists, chemical engineers and consultants follow lithium and it appears to suffer a bipolarity of its own…

Glencore International‘s repurchase of the Prodeco coal mine was a simple calculation of value for the Swiss commodities trader, and offers little insight into potential plans for an initial public offering or merger with Anglo-Swiss miner Xstrata.

Glencore and Xstrata said today that Glencore has exercised an option to repurchase the Colombian coal operation from the world’s biggest thermal coal producer.

Xstrata bought the mine a year ago for $2 billion when Glencore was short of cash, but gave its biggest shareholder an option to buy it back not later than Thursday for a price analysts estimate at $2.4 billion to $2.5 billion.

Glencore, meanwhile, took a look at the mine’s reserves and resources, coal quality, expansion potential and coal prices, and valued Prodeco at somewhere between $4 billion and $5 billion. “They decided they had to exercise the call,” a person close to the deal said.

They’re traders. They figured the asset was in the money. They acted. And that’s the story.

Still, investors and analysts are wondering if there’s a deeper strategic impetus to the decision…